Pivoting development for a new era

The landscape of development assistance has changed seemingly overnight, with implications that could last years with far-reaching impacts. In the last few weeks, the United States, the United Kingdom, France, the Netherlands, Switzerland and Belgium have all announced redirection of funds and major cuts of at least 25 per cent to their official development assistance (ODA).

In the United States, the anchor of the country’s development architecture – USAID – has been completely dismantled. Suffice to say there is less money going around, to different places, and for different priorities.

These shifts come as the world already faces a $4 trillion shortfall in financing to achieve the Sustainable Development Goals (SDGs). Debt-besieged countries across the Global South are also struggling to invest in economic growth, climate resilience and social progress – compounding threats to development objectives.

The US cuts alone could risk up to 18 million additional cases of malaria a year and one million cases of severe and potentially fatal childhood malnutrition. Despite years of progress, HIV infections could also rise over 600 per cent if US support isn’t replaced, and famine could spread, given that more than $489 million of food assistance is at risk. The impact on education, economies and inequality will likely take longer to manifest, although the consequences will likely be devastating.

While the new reality may take some time to fully set in, it is already clear that development funding gaps will widen. A paradigm pivot in how countries and institutions in (and between) both the Global South and Global North respond is needed.    

In doing so, leaders and their partners should prioritize looking in three directions: look across themselves and each other, look within, and look to the multipliers.  

Look across themselves and each other  

Coordination failure – between and within agencies, governments and institutions (national, bilateral and multilateral) – has been a longstanding feature of the development system. Leaders should lean into whole of government efforts that would augment information sharing and draw upon a wider set of budgeting and financing tools.  

At the same time, in light of ongoing cooperation failure, leaders should recommit to, reinvest in and reimagine cooperation and partnership, including with the private sector. Renewing trust, reforming the international financial architecture (especially to address debt and lower the cost of capital) and supporting South-South cooperation will also be critical.   

Look within  

Much is being said about domestic resource mobilization (DRM) to expand fiscal space and support development investments. In an era of diminished foreign budget support and rising inequality, these policies and initiatives will also be a vital means of redistribution and can help ensure the poorest aren’t left further behind.

Remittances could be critical and have historically dwarfed official development assistance – over $650 billion were sent back to families in lower- and middle-income countries (LMICs) in 2023, helping fund household spending needs and securing income in times of shock and emergency.

Formalization will also be important: the majority of the world’s enterprises (eight in ten) and workers (six in ten) remain in the informal economy where pay can be abysmal and basic labour rights are routinely ignored.

There must be an additional emphasis on generating demographic dividends by increasing the participation of women and youth in the labour market, as well as older people who want to remain in work.

Look to the multipliers

It is certain that leaders will need to do more with (much) less. Applied across multiple sectors – from health and education to agriculture, governance and public services delivery – technology, artificial intelligence and digital tools can increase productivity, reduce costs, spur innovation and product development, and expand reach and scale (although inequality, user protection and other risks will need to be managed).  

With a remarkable return on investment – $32 for every $1 spent – data and data ecosystems can also be game-changing: helping to understand needs, bring evidence into programmes and policies, reduce information asymmetries, enable early warning systems, increase accountability and measure progress.  

A third multiplier is localization by way of aligning support with national strategies, programme co-creation and ownership, funding local actors, in-country spending (including hiring host country nationals) and strengthening and increasing the use of local systems.

These practices promote inclusion, improve effectiveness and lower costs. They can also reduce dependency on aid over time: one study found that local intermediaries, working without inflated overheads and salary costs, delivered 32 per cent more cost efficient programming than international ones.

At the United Nations, these three directions are already reflected in the Pact for the Future and the Global Digital Compact. They must continue to be advanced this year through the Fourth Financing for Development (FfD4) process which will conclude in Seville in June, as well as the High-level Committee on South-South Cooperation in May, the High Level Political Forum in July and the Second World Summit on Social Development in November.  

Adapting to the new reality of declining ODA will require a renewed sense of purpose, pace, priority and precision.

We can look back to learn from the past, but we must also account for the present and look strategically to a new future – one where development is done differently. 

Read the full article authored by Head of Equitable Development at UNU-CPR Dr. Nicole Goldin here.